In today's economic climate, community associations face the challenge of pursuing payment from an increasing number of delinquent owners. The North Carolina Planned Community Act ("Planned Community Act") and the North Carolina Condominium Act ("Condominium Act") provide each community association ("Association") with the authority to collect delinquent assessments, including the power to place liens upon, and foreclose on, the property owned by the delinquent owner unless an Association's articles of incorporation or its community's or condominium's declaration of covenants specifically provide otherwise.
New Notice Requirements for ASSOCIATION Claims of Lien
Associations which have not been denied the power to do so by their organizational documents have the right to file claims of lien against lots and units for all assessments that remain unpaid for a period of 30 days or longer. Until now, there have been no explicit statutory requirements for Associations to: (1) provide delinquent owners with advance notice that claims of lien will be filed upon their property; (2) provide proof to the Clerk of Superior Court that a copy of the claim of lien was delivered to the delinquent owner; or (3) explain the legal consequences of such liens.
Effective October 1, 2009, however, Associations will be required to take these and additional steps before attempting to collect delinquent assessments.
Advance Written Notice and Statement of Amount Due
As of October 1, 2009, each Association will be required to provide to a delinquent owner at least 15 days advance written notice before filing a claim of lien against the owner's property. The written notice must include a statement of the assessment amount due and must be sent by first-class mail to the owner at all of the following addresses:
- The physical address of the lot/unit within the community;
- The owner's address of record with the Association;
- The address for the owner shown on the county tax records;
- The address for the owner shown on the county real property records for the lot or unit; and,
- If the owner is a corporation, the address of the registered agent listed with the Secretary of State.
The Association is required to send multiple notices only if one or more of the above addresses are different. If all of the addresses listed for an owner are identical, the Association needs to send only one notice letter. If the addresses are not identical, the Association is required to send a notice to each different address.
Each Association also will be required to make reasonable and diligent efforts to ensure that its records contain the delinquent owner's current mailing address.
In addition to the advance notice, Associations also will be required to serve the claim of lien on the delinquent owner. Proof of service on the delinquent owner must be attached to, and filed with, the claim of lien by way of a Certificate of Service that identifies the method of attempted service on the delinquent owner. Service must be attempted in accordance with the North Carolina Rules of Civil Procedure for service of a summons and complaint to initiate a civil lawsuit. Service pursuant to the Rules of Civil Procedure is complicated and precision is essential. Advice and assistance from experienced attorneys familiar with the service requirements of the North Carolina Rules of Civil Procedure would be wise.
If actual service of the claim of lien on the delinquent owner is not achieved, the Association nevertheless will be deemed to have complied with the service requirements if the service was attempted:
- By mailing a copy of the claim of lien by regular, first-class mail, postage prepaid, to the same addresses as required for the 15-day advance notice letter described above; and,
- By attempting service through one of the following methods:
- Mailing a copy of the claim of lien by certified mail, return receipt requested, to the owner;
- Depositing the claim of lien with a designated delivery service authorized by federal law to deliver court documents and obtaining a delivery receipt; or,
- Mailing a copy of the claim of lien by signature confirmation as provided by the United States Postal Service.
Lien Statement Disclosure
The following statement must appear (in boldface, capitalized letters, no smaller than the largest print used elsewhere in the claim of lien) on the first page of each claim of lien:
THIS DOCUMENT CONSTITUTES A LIEN AGAINST YOUR PROPERTY, AND IF THE LIEN IS NOT PAID, THE HOMEOWNERS ASSOCIATION MAY PROCEED WITH FORECLOSURE AGAINST YOUR PROPERTY IN LIKE MANNER AS A MORTGAGE UNDER NORTH CAROLINA LAW.
Clerk of Court Given Authority to Delay Foreclosure Proceedings
In addition to the changes to the Planned Community Act and the Condominium Act discussed above, North Carolina's foreclosure statutes also have been amended in ways that will affect Associations. Effective October 1, 2009, the Clerk of Superior Court ("Clerk") will have the authority to delay foreclosure of owner-occupied residential property. In a foreclosure hearing, the Clerk will inquire whether the owner occupies the lot or unit subject to the foreclosure as the owner's principal residence. If the owner does occupy the lot or unit as the principal residence, the Clerk then must inquire as to the efforts the Association has made to communicate with the owner in an attempt to resolve the delinquency voluntarily before the foreclosure proceeding was brought. This second inquiry will not be required if the Association submits to the Clerk, at or before the hearing, an affidavit briefly describing any efforts that have been made to resolve the delinquency with the owner and the results of such efforts.
If the Clerk finds that there is good cause to believe that additional time or additional measures will have a reasonable likelihood of resolving the delinquency without foreclosure, the Clerk may order the foreclosure hearing continued for not more than 60 days from the date scheduled for the original foreclosure hearing. In determining whether or not to extend the hearing, the Clerk may consider one or more of the following factors:
- Whether the Association has offered the delinquent owner an opportunity to resolve the delinquency through forbearance or other commonly accepted resolution planning appropriate under the circumstances;
- Whether the Association has engaged in actual responsive communication with the owner, including teleT conferences or in-person meetings or other actual two-party communications;
- Whether the owner has indicated the intent and ability to resolve the delinquency by making future payments under a foreclosure resolution plan; and,
- Whether the initiation or continuance of good faith voluntary resolution efforts between the parties may resolve the matter without a foreclosure sale.
In the event the parties cannot work out their differences before the expiration of the 60-day period, the Clerk then will proceed with the foreclosure hearing.
The laws governing collections by Associations will become more complicated and labor intensive on and after October 1, 2009. Associations will be required to take additional steps before and during the collection process in order to file claims of lien properly and to collect on them through the foreclosure process. As a result, Associations should review and update their collection policies and procedures, including routine updating of owner information, to ensure that they can navigate effectively through the new statutory framework.
For further information regarding the issues described above, please contact Derek J. Allen, Adam M. Beaudoin, Jenna Fruechtenicht Butler, Alexander C. Dale, Paul A. Fanning,J. Michael Fields, Samuel B. Franck, Justin M. Lewis, W. Daniel Martin, III, Eric J. Remington, or Ryal W. Tayloe.
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.